Originally created 05/11/02

Divide and conquer: Divorce can be equitable



NEW YORK - The multimillion dollar celebrity divorces get the headlines - Cleveland Indians pitcher Chuck Finley suing to end his marriage, the estranged wife of former New York City mayor Rudolph Giuliani seeking $1 million a year in support, former GE chairman Jack Welch negotiating a division of his assets with his wife.

But every day, hundreds of marriages break up out of the public's eye, with just as much emotional whiplash and financial pain. The dollars involved may be less, but how they're divided can be critical to how fast - and how well - the couple and their children heal.

"The reality of divorce is that couples generally are forced to maintain two households instead of one on the same amount of income," said Violet P. Woodhouse, a family law specialist in Newport Beach, Calif. "Nobody lives as well. Everybody lowers their standard of living."

Increasingly, she added, "they also have to figure out how to pay their creditors."

Roughly half of first marriages end in divorce, according to Census Bureau figures, typically after eight years. But Ms. Woodhouse, who wrote the book Divorce & Money, says she's seeing an increasing number of divorces after 20 or 30 years.

Ginita Wall, a financial planner in San Diego, believes that more baby boomer marriages are breaking up because "divorce is socially acceptable, and more women are earning money on their own so they're not so economically dependent."

That doesn't necessarily make it financially easier, even when the divorce is amicable, she added.

"The bottom line in a divorce is to try to have each spouse suffering equally, with the least impact on children," Ms. Wall said. "Typically, he says, 'I don't have enough to live on after (paying) alimony and child support,' and she says, 'There he is with half the money, and I have to cover myself and the kids with the other half.' "

For Howard Nash, 43, a New York public school teacher of drama, divorce has been "a financial wringer."

Alimony to his ex-wife, who is a lawyer, and support payments for two children, age 12 and 9, take two-thirds of his salary, leaving him with $150 a week to live on, he says.

He tries to supplement that with after-school work, and recently began producing low-budget feature films.

Although divorced for several years, Mr. Nash remains dissatisfied with both the financial settlement and visitation agreement but finds himself too cash strapped to fight them.

"We're both hurt," Mr. Nash concludes. "My life is damaged because of the judgment, and hers is damaged because this still isn't finished."

For Reina Lakser, 54, the key to reaching a settlement to end her marriage of more than two decades was getting help from Nancy B. Kaye, a financial adviser in Port Washington, N.Y., who is on the board of the Association of Divorce Financial Planners.

"It was a war - back and forth, back and forth - with the lawyers," Ms. Lakser said. "Then Nancy got involved. She was the rational voice. She said, 'Here is what you're entitled to, here is what you need to survive, here is how you both can do it.' "

Ms. Kaye believes that more couples should seek professional financial advice before they meet in court in what can result in very expensive litigation.

"Generally, the old rules no longer apply," Ms. Kaye said. "Maintenance, or alimony, is considered rehabilitative, so women are expected to go back to work - even if they've been out of the work force for years. And when you get to child care, nothing is a given. It can cost both parties."

She said that one of the biggest mistakes couples make when trying to divide their property is not looking at liquidity.

"Say they try to divide the assets 50-50," she said. "The wife gets the home, the husband gets their $400,000 saving account. Fine. So just how will she support herself that way?"

Ms. Kaye argued, too, that sometimes a 60-40 split would be more equitable "when you consider the impact on your cash flow today, and what it's going to look like five years from now."

Kim Lurie, who spent eight years fighting for her own divorce, used the experience to start a company called Divorce Coach in Merrick, N.Y.

"I found there was a big piece missing in the divorce process, which was a place to seek help on what to do, when to do it and how to do it," said Ms. Lurie, a 42-year-old attorney. "I try to guide people through the process and stay with them through the proceedings. Sometimes it's just answering questions like, 'My attorney said this. What does it mean?' "

Those who succeed in overcoming divorce, she believes, "accept the injustice of it all and move on to recreate their lives."

PRE-DIVORCE STRATEGIES

  • Establish your own credit: Apply for a credit card in your own name immediately if you do not already have one. Inform the issuers of credit cards you hold jointly that you are separated. Policies vary, but most companies will let you close the account to prevent new charges.
  • Close all joint accounts: Inform banks and brokerages of your separation so they do not sell jointly owned investments or process any other transactions unless both spouses' names are on the order.
  • Work out property settlement: Dividing property is usually the most difficult aspect of divorce. Major assets include the house and its furnishings, investments, retirement plans, automobiles, jewelry, antiques or even a closely held business. If you suspect your spouse is concealing assets, you might need to have an attorney or forensic accountant investigate.
  • Don't forget retirement money: Retirement savings in 401(k)s and IRAs are considered a marital asset. Unsuspecting spouses sometimes choose the house or cash over retirement assets, losing out on a retirement plan that can grow to $1 million or more.
  • Get tax advice: Divorce can dramatically change your tax situation. Seek the advice of an accountant or other tax professional. What may appear to be an equitable distribution of assets may really be a large tax bill. For example, a spouse who takes highly appreciated stocks as part of the settlement might be in for heavy capital-gains taxes when the shares are sold.

  • Prepare a budget: Determine how much money you will need to support yourself and any dependents. Reviewing past checking account statements and credit card bills can help in estimating future expenses.
  • Change beneficiaries, will: You might want to remove your ex-spouse as the beneficiary of your retirement plans and insurance policies. You might also need to update your will.
  • Source: Georgia Society of CPAs